2019 BUDGET STRATEGY PAPER Department of Treasury 30 August 2018
Outline Update on State of the Economy Fiscal Outlook 2019 to 2022 Revenue Expenditure Financing Government Reforms Economic and Fiscal Risks
Global Economy continues to Strengthen Per cent 4 • Global economy grew at 3.8% in 2017 and to 3.9 continue strengthen to 3.9% in 2018 and 2019. 3.8 3.7 Global growth strengthening to support 3.6 prices of PNG’s exports. 3.5 Leads to increase 3.4 farmers’ income, 2017 2018 2019 2020 2021 2022 company profits, increase tax collections and supports PNG’s World Total Real GDP Growth (2017 October WEO) economic growth. World Total Real GDP Growth (2018 April WEO)
O’Neill -Abel Government Plans 1. Alotau Accord 2 Priorities 2. The 25 Point (100 Day) Plan Economic Growth Maintain Fiscal Discipline and boost foreign exchange Infrastructure Grow our revenues Law and Order Strengthen our economic base Free and Quality Education Improve our governance record Free and Quality Health Act strategically
Domestic Economy Growth Picking up in 2019 Per cent • 8.0 16.0 Domestic economy to grow by 2.3% in 2019, 7.0 14.0 up from 1.0% in 2018, 6.0 12.0 • Growth to be driven by return to normal 5.0 10.0 gas production, early works associated 4.0 8.0 with the Wafi-Golpu and related spin-off 3.0 6.0 benefits in non-mining sectors. 2.0 4.0 1.0 2.0 • Growth projected to average around 5% 0.0 0.0 2017 2018 2019 2020 2021 2022 2023 from 2020-2024 driven by the -1.0 -2.0 construction phase of the Wafi-Golpu -2.0 -4.0 project and onset of LNG Train 3 in 2024. Total Real GDP (PNG) Non-Mining GDP Mining GDP (RHS) • Spin-Off activities from the Wafi-Golpu construction phase to boost non-mining • Volatility in mining growth reflecting varying and sector over the medium term. at times uncertain mine plans of mature mines.
2018-2022 Medium Term Fiscal Strategy (MTFS) • The 2018 Budget guided by the Alotau 2 Accord and 25 Point Plan. • The new Medium Term Fiscal Strategy (MTFS 2018-2022),a five year fiscal framework. The MTFS consists of a MTRS and MTDS. • Revenue Strategy-Lift revenue as a percentage of GDP by improving tax administration, tax policy and tax law reforms. • Expenditure Strategy – Reduce operational and increase capital Budget as a share of GDP and stick to the Budget. • Debt Management Strategy-Looking at reducing our deficit and shift from expensive short-term debt to cheaper long term external debt.
Fiscal Trend based on MTFS 2018- 2022 2016 2017 2018 2019 2020 2021 2022 0 0.0% Debt as % of GDP -0.5% -500 40 -1.0% -1,000 -1.5% 35 -2.0% -1,500 -1.2% -1.4% -2.5% -1.8% -2,000 -2.4% -2.5% -2.2% -3.0% 30 -3.5% -2,500 -4.0% -3,000 25 -4.5% -4.6% 2016 2017 2018 2019 2020 2021 2022 -3,500 -5.0% Net Lending (+)/ Borrowing (-) (LHS) Net Lending (+) / Net Borrowing (-) as % of GDP (RHS) • Our Debt is well within sustainable limits. • Budget Deficit remains stable in 2018 • Dinau bilong yumi e stap long gutpla • MTFS on Track! mark !
Medium Term Revenue Strategy (MTRS) & 25- Point Plan T AX R EVENUES (K MILLIONS ) M AJOR TAXES (K MILLIONS ) Revenue Strategy-Lift 10,000 revenue as a percentage of 9,500 GDP by improving tax 9,000 administration, tax policy and tax law reforms. 8,500 8,000 • Stop the declining trend in revenues; 7,500 2014 2015 2016 2017 2018 • Institute the MTRS strategies; • Enforce compliance and strengthen collections; and • Ongoing monitoring.
2019 BUDGET STRATEGY 2018 2019 2020 2021 2022 Total Revenue and 12,731 13,058.3 13,936.5 14,981 16,253.9 Grants 15.0% % of GDP 15.9% 15.0% 15.0% 14.9% Total Expenditure and 14,718 14,955.8 15,612.2 16,389.8 17,515.1 Grants 18.0% % of GDP 18.4% 16.8% 16.4% 16.1% Net Lending (+)/ Net -1,987 -1,897.5 -1,676 -1,408.8 -1,261.2 borrowing (-) -2.2% % of GDP -2.5% -1.8% -1.4% -1.2% Non-resource Primary -592 -442 -193 -10 98 Balance -0.7% % of GDP -1.0% -0.3% 0.0% 0.1% Gross Government 25,808 27,443 29,118.8 30,527.3 31,788.7 Debt 31.6% % of GDP 32.2% 31.4% 30.5% 29.2%
Revenue Outlook Kina Million • Revenue profile in 2019 20000 onwards reflective of 18000 MTRS. 16000 • Revenue increasing from 14000 K12.9 in 2018 to K13 12000 billion in 2019. 10000 8000 • Indicative Total Revenue and 6000 Grants for the 2019 Budget is K13,058.3 million higher by 4000 K114.5 million from 2018 2000 MYEFO projections and K327.6 0 million higher than the 2018 2017 2018 2019 2020 2021 2022 2023 Budget projection. Tax Revenue Donor Grants Other Revenue Total Revenue
Major Revenue Heads Projections Kina Million 16000 Major Tax revenues to 14000 increase gradually over the medium-term 12000 reflecting: 10000 • anticipated increase activities relating to 8000 the construction of a mining and a 6000 petroleum project. 4000 • supported by relatively 2000 increased MPT receipts due to better 0 forecasts of mineral 2017 2018 2019 2020 2021 2022 2023 and petroleum prices Personal Income Tax Company Tax GST2 Local Excise Import Excise Export Tax Import Duty MPT
Expenditure Outlook 2018 2019 2020 2021 2022 • The 2019 expenditure to (MYEFO) be guided by the 2018 Total expenditure & Net Lending 14,717.8 14,955.8 15,612.2 16,389.8 17,515.1 Expenditure Strategy as % of GDP 18.4% 17.3% 17.0% 16.5% 16.2% outlined in the MTFS and the MTDP III. Expense 10,044.0 10,029.6 10,248.7 10,469.4 11,266.5 % of GDP 12.5% 11.7% 11.1% 10.9% 10.5% • Indicative total Compensation of employees 4,163.0 4,266.2 4,397.2 4,532.1 4,671.1 expenditure and Net Use of goods and services 3,004.5 2,649.9 2,641.4 2,695.2 2,965 Lending for 2019 is Interest 1,864.7 2,009.5 2,105.9 2,136.6 2,323.6 K14.9 billion, Grant 499.9 572.3 572.3 572.3 572.3 K238.5 million higher GST Transfers to Provinces 511.9 531.7 531.9 533.2 534.5 than the 2018 MYEFO projection Capital Expenditure 4,673.88 4,926.2 5,363.5 5,820.4 6,448.5 % of GDP 5.8% 5.7% 5.8% 5.9% 6.0% GoPNG PIP 1,881.0 1,989 2,091 2,125 2,323 Service Improvement Programs 1,174.4 1,177.2 1,177.2 1,177.2 1,177.2 Loans Drawdowns 593.9 816.9 1,163.3 1,585.9 2,016.2 Project Support Grants 1,024.6 943.1 932.1 932.1 932.1
Expenditure Outlook Rebalance Expenditure Path over the medium to Stimulate broad based and sustainable economic growth… Focus on improving Expenditure Quality, Reduce Leakages, Control Public Sector Wage Bill, • Operational Expenditure to support Capital Investment • Tuition Fee Free, Healthcare Subsidy, Infrastructure Maintenance, etc • Capital Investment • High Impact Infrastructure (Sepik Plain, Highland Highway, Submarine Cable, etc) • Service Improvement Programs (Districts/Prov) • Health, Education, Transport & Energy Infrastructures • Loan Projects Counterpart Funding
Key Expenditure Priorities • Tuition Fee Free (TFF) Education • Free Primary Health Care • Services Improvement Program (PSIP , DSIP & LLGSIP) • District Infrastructure Fund • MTDP key enablers - health, education, Law and Order and infrastructure • Debt Servicing • Agriculture and SMEs • Promote tourism
Debt Financing Outlook • Debt to GDP ratio is 2018 Debt Instruments 2019 2020 2021 2022 31.2%, slightly (MYEFO) better than the 2018 Budget of 32.2%, Domestic Net Financing 373.8 200.6 454.7 816.2 862.1 within the prescribed debt to Securities 373.8 200.6 454.7 816.2 862.1 GDP band in the Treasury Bills 30.2 -108 156 87.7 -61.3 FRA . Inscribed Stock 343.6 308.6 298.7 728.5 923.4 • ADB Budget Support • External Net Financing 1,613.4 1,696.9 1,221.1 592.3 399.3 World Bank Budget Support being finalised Sovereign Bond 640 640 320 0 -640 • Sovereign Bond is in advanced stages Loans 973.4 1,056.9 901.1 592.3 1,039.3 Concessional Loans 337.4 480.6 808.3 1,123.40 1,389.7 • Proceeds from external financing will ease the Commercial 39.8 -17.9 -513.9 -513.9 -337.9 foreign exchange Extraordinary 596.2 594.2 606.7 -17.1 -12.4 imbalance. Total Net Financing 1,987.2 1,897.5 1,675.8 1,408.5 1,261.4
Government Reform Initiatives • Medium Term Revenue Strategy • Payroll Reforms • Strict Implementation of PFMA • Budget Reforms • Pursue Resource and Non-Resource Projects • Complementary Structural Policies and reforms • Fiscal Discipline
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